PIRAEUS BANK BULGARIA AD INDEPENDENT AUDITOR .../media/com/downloads/...Bulgaria AD, UIC 131352367, Bulfina EAD, mc 131088540, Piraeus Insurance Brokerage EOOD, UIC 175101929, Bulfinace

PIRAEUS BANK BULGARIA AD INDEPENDENT AUDITOR'S REPORT SEPARATE MANAGEMENT REPORT SEPARATE FINANCIAL STATEMENT 31 DECEMBER 2013

P~USBANKBULGARM

CONTENTS 31 DECEMBER 2013

CONTENTS

Independent auditor's

Management

Separate annual financial "'0.''''11.1''''', including:

- Separate income statement

- Separate statement financial position

- Separate statement of flows

- Separate statement in equity

- Notes to the financial statements

Page

1-11

12

13

14

15

16-69

pwc

Independent auditor's report

To the Shareholders ofPiraeus Bank Bulgaria AD

Report on the Financial Statements

We have audited the accompanying separate financial statements of Piraeus Bank Bulgaria AD which comprise the separate statement of financial position as of 31 December 2013 and the separate income statement, separate statements of other comprehensive income, changes in equity and cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management deterrriinesis necessary to enable thepreparationoffinanciaJ statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perlorm the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves perlorming procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement ofthe financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation ofthe financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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PricewaterhouseCoopers Audit OOD, 9-11 Maria Louisa Blvd., 1000 Sofia, Bulgaria T: +35929355200, F: +35929355266, WWW.pwc.com/ bg Registered with the Sofi a City Court under company file number 13424/1997.

This version ofour report/the accompanying documents is a translationfrom the original, which was prepared in Bulgarian. All possible care has been taken to ensure that the translation is an accurate representation ofthe original. However, in all matters ofinterpretation ofiriformation, views or opinions, the original language version ofour report takes precedence over this translation.

http:WWW.pwc.com

pwc

Opinion

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the financial position of the Bank as of 31 December 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Report on Other Legal and Regulatory Requirements Management is also responsible for preparing the Annual Report in accordance with the Accounting Act.

We are required by the Accounting Act to express an opinion whether the Annual Report is consistent with the annual financial statements of the Bank.

In our opinion, the Annual Report set out on pages 1 to 11, is consistent with the accompanying financial stateme s of the Bank as of 31 December 2013. ,

{~~Stefan Weiblen PricewaterhouseCoopers Audit OOD

28 March 2014 Sofia, Bulgaria

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PIRAEUS BANK BULGARIA AD SEPARATE MANAGEMENT REPORT 31 DECEMBER 2013

1. General information for the Bank

1.1. Establishment and Major Activities

Piraeus Bank Bulgaria AD ("the Bank") is a joint stock company registered at Sofia City Court in 1993. On 19 February 2008 Piraeus Bank Bulgaria AD is re-registered in the Trade Register at the Registry Agency of the Ministry of Justice according the requirements of the Trade Register Law. The address of its registered office is: lISE Tsarigradsko Shosse Blvd., Sofia, Bulgaria.

The Bank is a part of Piraeus Group (the Group). Piraeus Bank SA., Athens, is the ultimate parent of the Group and is incorporated and domiciled in Greece.

Piraeus Bank Bulgaria AD is a commercial bank fully . licensed to perform transactions in the country and abroad. The Balik provides retail banking, SME banking, and corporate banking and investment banking services.

1.2. Share capital structure

As of 31 December 2013 the share capital of the Bank is reported at its nominal value according to the court decision for its registration . As of 31 December 2013, the paid-in and court registered share capital, amounts to BGN 316,797,072 and is distributed into 316,797,072 ordinary shares each of which with issuing and nominal value of BGN 1. As of 31 December 2013, the major shareholder is Piraeus Bank SA., Athens, Greece, which owns 99.98% of the capital of the Bank.

Shareholders Number of Nominal Share (%) of shares value in BGN the capJial

As of31 December 2013 and 2012 Piraeus Bank S.A., Athens, Greece 316,739,723 316,739,723 99.98%

Others 57,349 57,349 0.02%

Total 316,797,072 316,797,072 100.00%

1.3. Management Structure of the Bank

Piraeus Bank Bulgaria AD Ithe Bank! has one-tier management structure with a Board of Directors. As of 31 December 2013, the Board of Directors of the Bank is as follows: - Chairman of the Board of Directors - Mr. ILLIAS MILLIS, a citizen of the Republic of Greece;

Vice-chairman of the Board of Directors and Chief Executive Officer of the Bank - Mr. A THANASIOS KOUTSOPOULOS, a citizen of the Republic of Greece; Member of the Board of Directors and Deputy Chief Executive Officer of the Bank - Mr. EMIL ANGELOV ANGELOV, a citizen of the Republic of Bulgaria; Member of the Board of Directors and Executive Director of the Bank - Mrs. MARGARITA DOBREV A PETROV A-KARIDI, a citizen of the Republic of Bulgaria; Member of the Board of Directors - Mrs. KRASIMIRA IVANOV A TODOROV A, a citizen of the Republic of Bulgaria; Member of the Board of Directors - Mrs. IOANNA KOUNA, a citizen of the Republic of Greece;

- Member of the Board of Directors - Mr. GEORGE POULOPOULOS, a citizen of the Republic of Greece;

- Member of the Board of Directors - Mr. IOANNIS DELIS, a citizen of the Republic of Greece.

PIRAEUS BANK BULGARIA AD SEPARATE MANAGEMENT REPORT (CONTINUED) 31 DECEMBER 2013

1. General information for the Bank (continued)

1.3. Management Structure of the Bank (continued)

The Bank is jointly managed and represented by any both of the Executive Members of the Board of Directors: Chief Executive Officer - Mr. A THANASIOS KOUTSOPOULOS, Deputy Chief Executive Officer - Mr. EMIL ANGELOV and Executive Director Mrs. MARGARITA PETROV AKARIDI.

The Regular General Meeting of the shareholders of the Bank from 30 August 2013 has not changed the annual remuneration for those members of the Board of Directors, who shall not be assigned to the management of the Bank, which is in the amount of BGN 1,500 (one thousand, five) .

1.4. Participation of directors in the share capital of the Bank

As of 31 December 2013, among the members of the Board of the Directors of the Bank only Mr. Emil Angelov Angelov owns shares from the capital of Piraeus Bank Bulgaria AD (13 shares which represent 0,0000041 % of the share capital of the Bank). During 2013, the members of the Board of Directors have not acquired orland transferred shares or bonds of the Company.

1.5. Participation of directors in other commercial enterprises.

As of 31 December 2013, the members of the Board of Directors of the Bank do not participate within the country in any commercial enterprises in the capacity of unlimited, liable partners, do not own more than 25% of the capital of another enterprise. As of December 31 st 2013 Mr. Athanasios Koutsopoulos, Mr. Emil Angelov and Mrs. Margarita Petrova-Karidi participate in the management in positions of representatives and members of the Board of Directors of the related to the Bank companies from the financial group of Piraeus in Republic of Bulgaria, namely: Piraeus Leasing Bulgaria AD, UIC 131352367, Bulfina EAD, mc 131088540, Piraeus Insurance Brokerage EOOD, UIC 175101929, Bulfinace EAD, UIC 200040114, Asset Management Bulgaria EOOD, UIC 201901156, Beta Asset Management Bulgaria EOOD, UIC 202669554.

1.6. Branch network

As of 31 December 2013, the Bank operates through its Central Office and 83 branches throughout the country. The branch network is as follows:

Number City Branch Address

Asenovgrad Asenovgrad I "Acad, N, HailOv' Sq,

2 Bansko Bansko I00 "Pirin" SIr,

3 Blagoevgrad Blagoevgrad I "Krali Marco" SIr.

4 BOlevgrad BOlevgrad 7 "Saransk" Sq,

5 Burgas Burgas - Cyril and Melhodius 10 "SI. SI. Cyril and Melhodius" Sq,

6 Burgas Burgas - Plaza "Transportna' SIr" Burgas Plaza Mall

7 Varna Varna - Benkovski 33 "Bratya Georgievich",SIr,

8 Varna Varna - Ivan Drasov 10 "Ivan Drasov" Str,

9 Varna Varna - Towers 256 "Vladislav Vamenchik" Blvd ,

10 Varna Varna - Cherven Ploshlad 6 "Kniaz Nikolaevich" Blvd ,

II Varna Varna - Cherno More 33 "Slivnitza' Blvd.

12 VelikoTarnvo Veliko Tamoyo 5 "Bacho Kim" SIT,

13 Veliko Tarnvo Veliko Tamoyo - Stambolov 4 "G,S. Rakovski" Str,

14 Vidin Vidin I "Alexander Balenberg" SIr.

15 Vratza Vratza 2 "Anlim f' SIr.

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1. General information for the Bank (continued)

1.6. Branch network (continued)


16 Gabrovo Gabrovo 30 "Skobelevska" Str .

17 Goma Oriahovitza Gorna Oriahovitza 2 "Ivan Vazov" Str.

18 Gotze Delchev Gotze Delchev 5, "Targovska" Sir.

19 Dimilrovgrad Dimitrovgxad _2 "Bulgaria" Blvd.

20 Dobritch Dobritch 25 "25 September" Blvd.

21 Dupnitza Dupnitza 22 "S!. Ivan Rilski" Sir.

22 Kazanlak Kazanlak 15 "Sevtopolis" Sq.

23 Kardzhali Kardzhali 47 "Bulgaria" Blvd.

24 Lovech Lovech 42 "Targovska" SIr.

25 Montana Montana 107 "Treti Mart" Str.

26 Pazardzhik Pazardzhi~ 20 "Plovdivska" Str.

27 Pernik Pernik 15 "Kralcra" Str.

28 Pernik Pernik - 1I1dustrial Zone I "Vladaisko vastanie" Sir.

29 Petrich Petrich 14 "Vanga" Sir.

30 Pleven Pleven - Danail Popov 14 "Danail Popov" Sir.

31 Pleven Pleven - Zhinzifov I "Rayko Zhinzifov" Str.

32 Plovdiv Plovdiv - Beethoven 9 "Bethoven" Str .

33 Plovdiv Plovdiv - Vasil Aprilov 72 "Philip Makedonski" Str.

34 Plovdiv Plovdiv - Maria Louisa 23 "Maria Luiza" Blvd.

35 Plovdiv Plovdiv - Ploshtad Bulgaria 13A "Patriarch Evtimii" Sir.

36 Plovdiv Plovdiv - Rilon Center 92B "Hristo Botev" Blvd.

37 Plovdiv Plovdiv - Center 4 "Hristo G. Danov' Sir.

38 Razgrad Razgrad I "Vasil Levski" Sir.

39 Ruse Ruse - Alexandrovska I "Zaitchar" Str.

40 Ruse Ruse - Iretchek 14 "Konstantin Iretchek" Sir.

41 Sandanski Sandanski I "Macedonia" Sq.

42 Svilengrad Svilengrad III "Bulgaria" Blvd.

43 Svistov Svistov 88 "Tzar Osvoboditel" Str.

44 Sevlievo Sevlievo 88 "S!. Peshev" Sir.

45 Silislra Silislra 23 "Simeon Veliki" Str.

46 Sliven Sliven 12 "Hadzhi Dimitar" SU.

47 Sofia Sofia - 7-th Ian 127A "Tzarigradsko Shose" Blvd.

48 Sofia Sofia - Business Park Mladost 4, Business Park, Building I A

49 Sofia Sofia - Boyana . Boyana, 63 "Sevastolcrator Kaloyan" Str.

50 Sofia Sofia - Blvd . Bulgaria 146 "Vitosha" Blvd.

51 Sofia Sofia - Blvd. Gotze Delchev 103 "Gotze Delchev" Blvd.

52 Sofia Sofia - Vasil Levski III "Vasil Levski" Blvd.

53 Sofia Sofia - Vitosha 3 "Vilosha" Blvd.

54 Sofia Sofia - Euroins 43 "Christopher Columb" Blvd.

55 Sofia Sofia - Iztok 3A, "Nikolay Haytov" Sir.

56 Sofia Sofia - Ivan Vazov 104 "Acad. Geshov" Blvd.

57 Sofia Sofia - Krasno selo 5 "Gotzhe Deltchev" Blvd.

58 Sofia Sofia - Lozenetz 30 "S!. Naum" Blvd.

59 Sofia Sofia - Lozenetz, Hemus 31 "Cherni Vrah" Blvd

60 Sofia Sofia - Lyulin zh.k."Ljulin-6", "Dzhavaharlal Neru" Blvd., bl. 601

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1. General information for tbe Bank (continued)

1.6. Branch network (continued)


61 Sofia Sofia - Manaslirski Livadi 98 "Bulgaria" Blvd.

62 Sofia Sofia - Miadosl Mladosl3, blockJ 14/319

63 Sofia Sofia - Nadezhda zh ,k. "Nadezhda-I ", 171 "Lomsko Shosse" Blvd ,

64 Sofia Sofia - Oboritste 3 "Oboriste" Str.

65 Sofia Sofia - Patriarch EVlimii 62 "Vasil Levski" Blvd,

66 Sofia Sofia - Pencho Siaveikov 5 "Pencho Siaveikov" Blvd.

67 SofIa Sofia - Poduiane 49 "Madrid" Blvd,

68 Sofia Sofia - Simeol1ovsko Shose 97 "Simeonovsko Shose" Blvd,

69 Sofia Sofia - Sitniakovo 2A "Boris Hrislov" Blvd,

70 SofIa Sofia - Sialina 92 A "Slalinska" Sir.

71 Sofia Sofia - Slivnitza 228 "Slivnitza" Blvd.

72 Sofia Sofia - Sofia Land 53A "N.!. Vaptzarov" Blvd.

73 SofIa Sofia - The Mall 115 "Tzarigradsko Shosc" Blvd.

74 Sofia Sofia - Tzar Simeon 82 "Tzar Simeon" Blvd.

75 Sofia- Sofia - Tzarigradsko Shose 62 "Tzarigradsko Shosc" Blvd,

76 Sofia Sofia - Chcmi Vrah 43 "Chemi Vlah" Blvd,

77 Stara Zagora Stara Zagora - Ruski 38 "Ruski" Blvd

78 Slara Zagora Stara Zagora - Tzar Simeon Veliki 65 "Liuben Karavelov" Sir.

79 Troyan Troyan 76 "Vasil Lcvski" Sir.

80 Targovishte Targovishle I "Svoboda" Sq.

81 Haskovo Haskovo 20 "Rakovski' Blvd.

82 Shumen Shumcn 3 "Slavianski' Blvd.

83 Yambol Yambol 5 "Georgi Drazhev" SIr.

1.7, Personnel

As of 31 December 2013 the personnel of the Bank includes 838 (2012: 832) employees (plus additional 3 senior management employees with management contracts), respectively with the following composition and structure:

Type of personnel 2013 2012

Management personnel 168 166 Analytic specialists 138 131 Applied specialists 184 189

Auxiliary personnel 344 342

Motor vehicle operators 2 2

Low-skilled personnel 2 2 838 832Total

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PIRAEUS BANK BULGARIA AD SEPARATE MANAGEMENT REPORT (CONTINUED)

. 31 DECEMBER 2013

2. Market position

2.1. Banking system

According to information from the Bulgarian National Bank, as of the end of 2013, the assets of the banking system amounts to BGN 85,746,670 thousand, while BGN 82,415,660 thousand at the end of 2012, which is an increase by 4.0% (2012: 7.3%). Attracted deposits from customers increase from BGN 57,941,593 thousand as of31 December 2012 to BGN 62,869,528 thousand as of31 December 2013, which represents increase by 8.5% (2012: 8.6%).

As of the end of 2013, gross loans amount to BGN 58,488,616 thousand, while BGN 57,840,617 thousand for year 2012, which represents increase by 1.1 % (2012: 3.2%). Company loans maintain their volume and amount to BGN 38,305,779 thousand in 2013 while BGN 38,166,278 thousand in 2012, which represents increase by 0.4% (2012: 5.7%). Mortgage loans also register decrease by 0.6% in 2013 (2012: increase by 0.8%) and their volume is BGN 9,388,647 thousand,in 2013 while BGN 9,441,757 thousand in 2012. In 2013 is registered increase in consumer loans - from BGN 8,973,444 thousand as of the end of 2012 to BGN 9,115,266 thousand as of the end of 2013, which represents increase by 1.6% (2012: decrease by 1.9%).

The non-audited 2013 net profit of the banking system is BGN 584,867 thousand, while BGN 566,842 thousand for year 2012, which represents increase by 3.2% (2012: decrease by 3.3%).

The banking system remains stable, with excellent ratios for capital adequacy and liquidity, and wellfunctioning bank control. The ratio for overall capital adequacy of the banking system is above the required 12% (16.85% as of the end 2013 against 16.66% as at the end of2012). The adequacy ratio of the Tier I capital is also above the regulatory requirement of 10% (16.04% as of the end of 2013 against 15.16% as of the end of 2012). The liquidity ratio improves up to 27.07% in 2013 from being 26.00% in 2012. .

I. 2.2. Market share and market position of Piraeus Bank Bulgaria AD In 2013 Piraeus Bank Bulgaria AD maintains II-th place regarding total assets with a share of 3.9% (2012: 3.8%). The Bank maintains 9-th place in terms of total loans to non-fmancial customers with market share of 4.3% (2012: 4.7%). In 2013 the Bank maintains 7-th place in company loans with market share of 5.3% (2012: 5.8%). Regarding mortgage loans the Bank takes 8-th place with share of 3.5% (2012: 7-th place with share of 3.9%). Regarding consumer loans the Bank takes 14-th place with market share of 1.4% (2012: 1.6%). In 2013 the Bank improves its place by one position up to II-th place regarding attracted funds from companies with market share of 3.1 % (2012: 2.4%). Regarding attracted deposits from individuals the Bank maintains 10-th place in 2013 with market share of2.8% (2012: 2.6%)

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3. Activities and financial report overview

3.1. Analysis of the financial results by activities

In 2013 Piraeus Bank Bulgaria AD registers increase in total assets by 8.3%. Loans of non-financial institutions decrease by 9.9% (2012: decrease by 7.7%). On the other hand, deposits from non-financial customers register increase in 2013, which is measured at 23.8% (2012: increase by 13.9%).

Assets 2013 % from 2012 % from Change in %of Total Total the absolute change

Assets Assets amount

Assets Cash and balances with central 167,357 5.0% 317,418 10.2% (150,061) (47.3%) banks Financial assets held for trading 12,422 0.4% 14,174 0.5% (1,752) (12.4%) A vailable-for-sale financial 1,626 0.0% 1,627 0.1% (1) (0.1%) assets Loans and advances to banks 814,227 24.2% 169,651 5.4% 644,576 379.9%

Loans and advances to customers 2,261,138 67.4% 2,508,751 81.0% (247,613) (9.9%)

Tangible and intangible assets 23,690 0.7% 29,092 . 0.9% (5,402) (18.6%)

Investments in subsidiaries 45 0.0% 40 0.0% 5 12.5%

Other assets 75,809 2.3% 58,090 1.9% 17,719 30.5%

Total assets 3,356,314 100.0% 3,098,843 100.0% 257,471 8.3%

Liabilities 2013 %from 2012 %from Change in %of Total Total the absolute change

Liabilities Liabilities amount

Liabilities Deposits from credit institutions 769,140 28.2% 849,013 34.4% (79,873) (9.4%) Deposits other than from credit 1,820,671 66.8% 1,471,118 59.5% 349,553 23.8% institutions Convertible bonds 50,431 1.8% 49,554 2.0% 877 1.8%

Subordinated liabilities 73,476 2.7% 72,160 2.9% 1,316 1.8%

Financial liabilities held for 399 0.0% 5 0.0% . 394 7880.0% trading Provisions 1,838 0.1% 2,019 0.1% (181) (9.0%)

Other liabilities 10,162 0.4% 28,189 1.1% (18,027) (64.0%)

2,726,117 100.0% 2,472,058 100.0% 254,059 10.3%Total liabilities

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3. Activities and financial report overview (continued)

3.1. Analysis of the financial results by activities (continued)

According to separate groups of income and expense, the following results have been registered:

Items Income % oflolal Expense % oflolal Difference 2013 income 2013 expense

Interest 181,783 86.4% 89,595 43.3% 92,188

Fees and commission 21,769 10.3% 4,017 1.9% 17,752 (18) (0.0%) (18)Operations with fmancial assets

held for trading Operations with fmancial assets 11 0.0% 11 available for sale, net Net trading income 4,339 2.1% 4,339 Exchange differences, net (537) (0.3%) (537)

Other income / expense 3,060 1.5% 19 0.0% 3,041 210,407 100.0% 93,631 45.2% 116,776

Operating expense 60,722 29.3% (60,722)

Increase in impairment 52,649 25.4% (52,649) Provisions for outstanding (61) 0.0% 61 litigations

Total financial items

132 0.1% (132)Taxes

Total 210,407 100.0% 207,073 100.0% 3,334

Items Income % oflolal Expense % oflolal Difference 2012 income 2012 expense

Interest 201,284 84.9% 88,177 38.8% 113,107

Fees and commission 22,832 9.6% 3,942 1.7% 18,890

Operations with fmancial assets 50 0.0% 50

held for trading Net trading income 4,249 1.8% 4,249

Exchange differences, net (358) (0.2%) (358)

Other income / expense 9,243 3.9% 483 0.2% 8,760

Total financial items 237,300 100.0% 92,602 40.7% 144,698

Operating expense 66,715 29.3% (66,715)

Increase in impairment 68,085 29.9% (68,085)

Provisions for outstanding 204 0.1% (204) litigations

Taxes 10 0.0% (10)

Total 237,300 100.0% 227,616 100.0% 9,684

In 2013 cost to income ratio for the Bank is measured at 52.0%, while 46.1 % in 2012.

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3. Activities and financial report overview (continued)

3.2. Ratios

Ratio between interest margin and income 2013 2012 Interest expense 89,595 88,177 Interest income 181,783 201,284 Interest margin/lnterest income 50.71% 56.19%

,Financial result against own capital (average) 2013 2012 Profits from the current year 3,334 9,684 Own capital (average) 626,044 624,409 ROEav (Return on average equity) 0.53% 1.55%

Financial result against average assets 2013 2012

Profits from the current year . 3,334 9,684

Average total assets 3,341,712 3,122,449

ROAav (Return on average assets) 0.10% 0.31%

Own capital (average) against average assets 2013 2012

Own capital (on average) 626,044 624,409

Average total assets 3,341,712 3,122,449

Own capital/Average assets 18.73% 20.00%

4. Financial risk management

The Bank has established and implements complex mechanisms for management and control of all substantial risks, to which it is exposed in its operations and strives to develop them periodically in order to improve the risk control. These mechanisms take into consideration the scale and the complexity of the different activities and the risks that arise from them, and also aim to be in conformity with the Bulgarian laws and regulations, the standards of the Banking Group and the best banking practices. The Bank's structure is organized in a way as to achieve higher efficiency in the operational activity, and to differentiate the responsibilities of the business units and those of the units with control functions. All the main processes that originate credit, liquidity and market risks are managed in a centralized manner, and the mechanisms for identification and reporting of the operational risk comprise all structural units of the organization~ The decisions in all areas of activity are taken based on clearly defined scales with personal competencies of officers and bodies. The Bank has established a system of control mechanisms in the credit process and the credit risk management, which is the most significant for it, with regard to customers' segments, volumes of credit exposures, product types, extent of collateral coverage and collateral types . A special Assets and Liabilities Management Committee performs the operational management of market and liquidity risks. The Committee members are all the executives and the managers of the main units at the bank, which activity is related to taking and controlling credit, liquidity and market risks. The overall supervision and control on the operational risk is perfonned by the Risk Management Division. It carries out monitoring and control over the other risks as well, using data from the Bank information systems and controlling the utilization of the established internal and regulatory limits. International Banking Division of the financial group also performs ongoing monitoring over the risks and the limits usage, based on periodic reports prepared by the Bank.

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4. Financial risk management (continued)

A process of Risk and Control Self - Assessment (RCSA), referring to the activities of all units at the bank's Headquarter is performed annually. The process is related to analyzing the functions and organization of the work flow at different units and leads to conclusions and actions that heads of these units carry out, in order to reduce the risk of loss and to improve the control over the work processes within their area of activities.

In 2013 the focus in the area of credit activity was targeted at keeping close contact with the existing customers, accomplishing thorougb analysis of their operations and the economic sectors, in which they operate, so as the Bank could respond to their dynamically changing needs, resulting from the unfavorable macroeconomic environment in the country and abroad. The strict credit selection criteria for new customers for credit operations and high level of coverage of the credit risk exposures by collaterals were continued to be applied. As a result from continuing adverse economic conditions and clients' cautiousness, the credit portfolio volume decreased by &.7% in 2013 and the share of the problem loans, classified as "Non-perfonning" and "Loss" under the provisions of BNB Ordinance 9, increased from 29.6% to 33.6%. Among the business customers the increase is from 29.1% to 33.4% and within the retail segment - from 31.8% to 34.5%. Due to the increased credit risk, resulting from the worsened macroeconomic conditions and their reflection over the bank customers, the provisions for credit risk coverage under IFRS, as of end of 2013, are 4.4% higher than those at the end of the previous year. The increased volume of provisions, combined with the attrition of the loan portfolio has contributed to increase of its provisions coverage - from 8.06% at the end of 2012 to 9.21 % at the end of2013.

Piraeus Bank Bulgaria's policy is to keep low levels of market risks, which reflects in low internal market risk limits. The net open FX position of the Bank is at very low levels in comparison with the regulatory requirements for providing Currency risk capital coverage. The FX risk sensitivity, measured through the indicator Value-at-Risk (VaR) at 99% confidence interval and holding period of 10 days is 10 thousand BGN or just 0.002% from the Bank's capital.

The Interest rate risk exposure in the banking and the trading books is moderate. The value of the Eamings-at-risk indicator (EaR), measuring the change in the Net interest income in one year horizon at standard shock (200 b.p. parallel shift of the market yield curve) and the change in the balance sheet value as a result of the same interest rates change over the whole yield curve (BPV), are respectively BGN 14,989thousand and BGN 7,4 I 7thousand. The gap between the interest sensitive assets and liabilities towards the interest bearing assets, which is one of the Bank's measures for the exposure towards interest rate risk, is at moderate levels with the I-month, 3-months and I-year horizons, being respectively 11.75%,21.49% and 6.08%.

The Liquidity risk of the Bank is monitored and managed continuously. Its level is measured through a system of parameters, which values indicate an acceptable level of this type of risk. As at the end of the reporting period the liquid assets coefficient (according to BNBmethodology) stands at 35.85%, the liquidity vulnerability coefficient (quick assets/easy-to-withdraw liabilities) is at 178.98%, the deposit concentrations coefficien~ showing how many times the liquid assets cover the amount of large deposits, which are those exceeding 5% of the own funds is ]7.47 and the deposit concentrations ratio that measures the coverage of the Top 10 deposit concentrations by liquid assets, is 6.81. The Structural liquidity ratios (4.32 for the period up to I month and 1.96 up to I year) also indicate well managed liquidity position. The volume of deposits from customers increased significantly during the reporting period - by 24%. The attracted funds from corporate customers are the main driver for that by increasing with 37%. At the end of 2013 the deposits from retail customers increased by 15% and represent 60% of the total deposit base from customers. 97% from them are time deposits and savings accounts. The statistical model used by the Bank to test the stability of the attracted funds (going concern scenario) shows that 87% of total deposits will remain in the bank at least until the end of2014.

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4. Financial risk management (continued)

The management conducts a policy of gradually reducing the dependence on the banking group in the area of liquidity by increasing the volume and the share of customer deposits in the total attracted funds . Thus, at the end of 2013 the share of attracted funds from banks in the total deposit base (excluding hybrid instruments and subordinated debt) decreased to 30% (compared to 37% at the beginning of the reporting period). Despite the significant increase in the share of attracted funds from customers to attracted funds from banks, the cost of funds has decreased in 2013 (with 10 bp), going down to 3.43% on average base throughout 2013. As a result of the continuing decline in the volume of the credit portfolio in 2013 and the significant growth in the customers deposit base, the loans/deposits ratio improved from 170% to 124%.

The activity of the Bank and the risks assumed by it are consistent with its risk bearing capacity (considering the regulatory requirements) and with the economic capital that is needed to cover the specific risks, associated with different activities. The Parent company follows a consistent policy for reinvesting all profits realized from the bank activities, thereby providing opportunities for capital growth of the subsidiary and facilitating its future development. The Bank performs monthly analysis of the size and the structure of the required and the available own funds to cover the capital requirements for individual risks according to the provisions of Pillar I and Pillar II from the regulatory framework, including the interest rate risk in the banking book, the liquidity risk, the credit concentrations risk, and for foreign exchange risk, according to the Recommendation of the European Systemic Risk Board on lending in foreign currencies ESRB/2011/l) for holding additional capital buffer to cover risks associated wj1h foreign currency lending and the risks stemming from the nonlinear relation between credit and market risks. The internal analysis of the capital position is complemented by scenario analysis and stress tests, based on which the Bank simulates highly adverse changes and their impact on the income and the bank's capital.

The total amount of own funds at the year end (according to the regulatory requirements of BNB) is BGN 409,742 thousand, incl. BGN 219,622 thousand to cover credit risk, BGN 34,937 thousand for operational risk and BGN 254 thousand for market risk. There is BGN 154,929 thousand excess capital over the minimum required statutory level, at which the capital adequacy would go down to 12%. Out of them BGN 30,167 thousand are allocated as reserves for risks under Tier II. The total amount of the own funds consist ofTier I capital.

J

10

PffiAEUS BANK BULGARIA AD SEPARATE MANAGEMENT REPORT (CONTINlJED) 31 DECEMBER 2013

5. Major objectives for 2014

5.1. Basic priorities

Focusing on increasing the attracted funds from customers. Affirming the corporate identity and improving customer servicing.

5.2. Information systems

Renovation and update of infonnation system to provide better service for the business.

5.3. Brancb network

In 2014 no change in the number of branches of the Bank, through which it operates, is planned.

5.4. Personnel

The number of personnel of the Bank will be preserved in 2014.

5.5. Market share

The market shares of the Bank are expected to reach the following levels by the end of2014: 3.8% with respect to assets; 5.1 % with respect to loans to non-financial institutions;

2.7% with respect to deposits from non-financial institutions.

6. Events after the balance sheet date

event after the balance sheet date, which are of importance to this

Athanas· s Koutsopoulos

Chief xecutive Director

Date: 27 March 2014

(

1

11

2012

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

Stefan Weiblen PricewaterhouseCoopers Audit OOD

Margarita Petrova-Karidi Executive Officer

PIRAEUS BANK BULGARIA AD SEPARATE INCOME STATEMENT 31 DECEMBER 2013

Interest income

Interest expense Net interest income

Fee and commission income

Fee and commission expense

Net fee and commission income

Gains from available for sale securities Net trading gains

Net foreign exchange translation differences Other operating income

Personnel cost General and administrative expense Other income / (expense) Depreciation

Impairment

Profit before income tax

Income tax expense

Profit for the year

SEPARATE STATEMENT OF OTHER COMPREHENSIVE INCOME Positions, which will not be reclassified into profit / loss Revaluation of Pensions and other obligations for compensation after retirement Effect of reorganisation of subsidiaries

Positions, which will not be reclassified into profit / loss Net income from financial assets available for sale Revaluation reserve recognized in the income statement

28 March 2014

(All amounts in thousands ofBGN)

Year ended 31

December

Note 2013

7 8

181,783

{89,595 2 92,188

9 21,769 10 {4,0172

17,752 18,890

3,466 91694

17 {1 322 00)

31334 9,684

78

78

II (112

8,579

ittee and signed

201,284

{88,1772 113,107

22,832

(3,9422

4,299

(358)

9,243

{I 5,782) (40,117)

(687) (lO,816)

(68,0852

(1,105)

(I,105)

II

12

13 14 15 23 16

I I 4,321

(537) 3,060

(14,965) (37,972)

42 (7,785)

(52,6492

The accompanying notes from page 16 to page 69 are integral part of these separate financial statements. 12

PIRAEUS BANK BULGARIA AD SEPARATE STATEMENT OF FINANCIAL POSITION 31 DECEMBER 2013 (All amounts in thousands ofBGN)

As of 31 December Note 2013 2012

ASSETS Cash and balances with the central bank 18 167,357 317,418 Financial assets held for trading 19 12,422 14,174 Available-for-sale financial assets 20 1,626 1,627

Loans and advances to banks 21 814,227 169,651

Loans and advances to customers 22 2,261,138 2,508,751

Property, plant and equipment 23 18,523 24,583

Intangible assets 23 5,167 4,509 Investments in subsidiaries 24 45 40

Current tax assets 6,447

Deferred tax assets 32 765 710

Other assets 25 75,044 50,933 TOTAL ASSETS 3,356,314 3,098,843

LIABILITIES Financial liabilities held for trading 26 399 5 Deposits from credit institutions 27 769,140 849,013

Deposits other than from credit institutions 28 1,820,671 1,471,118

Convertible bonds 29 50,431 49,554

Subordinated liabilities 30 73,476 72,160

Provisions 31 1,838 2,019

Current tax liabilities 137

Other liabilities 33 10,025 28,189

TOTAL LIABILITIES 2,726,117 2,472,058

EQUITY Share capital 34 316,797 316,797

Revaluation reserves for available for sale assets 34 2 2

Legal reserves 34 33,561 32,515

Retained earnings 34 279,837 277,471

TOTAL EQUITY 630,197 626,785

TOTAL LIABILITIES AND EQUITY 3,356,314 3,098,843

Athana . s Koutsopoulos Chi xecutive Officer

r(~:r';fi"tion p"'poses in th' "r",n" to th, .udit "port:

Stefan Weiblen PricewaterhouseCoopers Audit OOD 28 March 2014

ittee and signed

Margarita etrova-Karidi Executive Officer

The accompanying notes from page 16 to page 69 are integral part of these separate financial statements.

I 13

PIRAEUS BANK BULGARIA AD SEPARATE STATEMENT OF CASH FLOWS 31 DECEMBER 2013 (All amounts in thousands ofBGN)

Year ended 31 December

OPERATING ACTIVITIES Net profit Interest (income) Interest received Interest expense Interest (paid) Current and deferred tax expense, recognized in income statement Unrealized foreign currency (gains) Depreciation / amortization Impairment Provisions, net (Gains)/losses on sale of investments, net Cash flows from operating activity before changes in operating assetsllia b iiities Decrease in balances with central banks Decrease in loans and advances to customers Decrease in fmancial assets held for trading (Increase) in other assets (defmition balance sheet) (Decrease) in deposits from credit institutions Increase in deposits from institutions other than credit institutions Increase / (decrease) in financial liabilities held for trading Increase / (decrease) in other liabilities (definition balance sheet) Cash flow from operating activities Income tax reimbursed / (paid) NET CASH FLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Cash (payments) to acquire tangible assets Cash proceeds from the sale of tangible assets Cash (payments) to acquire intangible assets Cash (payments) to acquire investments in associated, subsidiary or joint ventures, net of received cash payments NET CASH FLOW FROM INVESTING ACTIVITIES

Net changes in caash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Note 2013 2012

3,334 9,684

7 (181,783) (201,284) 155,072 162,525

8 89,595 88,177 (86,139) (86,578)

17 132 10 (2,829) (1,336)

23 7,785 10,816 16 52,649 68,085

(76) 366 (15) 300

37,725 5°2765 167 115

232,103 164,179 1,393 3,319

(25,479) (17,513) (78,844) (314,876) 353,658 181,552

394 (271) ( 18,035) 16,325

503,082 83,595 62397 (72579}

5092479 76,016

(1,396) (673) 1,973 104

(2,624) (1,302)

(5)

(22°52) {1 2871}

507,427 74z145

3,366 1,694

395,870

36 470,015

MargarIta etrova-Karidi Executive Officer

Initiated for identification purposes in the reference to the audit report:

£VJ Stefan Weiblen PricewaterhouseCoopers Audit OOD 28 March 2014

The accompanying notes rrom page 16 to page 69 are integral part or these separate financial statements.

I 14

Athanasios outsopoulos ChiefE cutive Officer

Margarita P Executive Officer

PIRAEUS BANK BULGARIA AD SEPARATE STATEMENT OF CHANGES IN EQUITY 31 DECEMBER 2013 (All amounts in thousands ofBGN)

Share capital Revaluation Retained Other Total reserve on AFS earnings reserves

securities

Balance as of 1 January 2012 316,797 2 274,031 27,376 618z206 Profit for the year

Total comprehensive income in 2012

Transfers from retained earnings Effect of reorganisation of subsidiaries

Balance as of 1 January 2013 316,797 2

Profit for the year Revaluation of Pensions and other obligations for compensation after retirement Revaluation of financial assets available for sale 11 Revaluation reserve recognized in the income statement (11 ) Total comprehensive income in 2013 Transfers from retained earnings

Balance as of 31 December 2013 316;797 2

lniti ted for identification purposes in the reference to the audit report:

,. --.. I,P.., ·' . " .

.~,

'~ '.' ,

f' " :.; "\ " , "

\ "Stefan Weiblen

PricewaterhouseCoopers Audit 0 D \ "

28 March 2014 '

PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS 31 DECEMBER 2013 (All amounts are in thousands ofBGN)

1. General information

Piraeus Bank Bulgaria AD (the "Bank") provides retail, corporate banking and investment banking services. The Bank operates through 83 branches in the country (2012: 83), and employs 838 people as ofthe end of year 2013 (2012: 832).

The Bank is a joint stock company registered at Sofia City Court, and operates in Bulgaria since 1993 and since 2008 Piraeus Bank Bulgaria AD is re-registered in the Trade Register at the Registry Agency of the Ministry of Justice with DIC 831633691 . The registered seat and address of its office is: lISE Tsarigradsko Shosse Blvd., Sofia, Bulgaria.

The Bank is part of Piraeus Bank Group (the Piraeus Group). Piraeus Bank S.A. Athens is the ultimate parent and controlling party of the Piraeus Group and is incorporated and domiciled in Greece. These separate fmancial statements have been approved for issue by the Executive Committee on 27 March 2014.

2. Basis for preparation of the separate financial statements

The separate financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The separate financial statements are presented in the national currency of Bulgaria, the Lev (BGN). The separate financial statements have been prepared under the historical cost convention, as modified by the available-for-sale investment securities, financial assets held at fair value through profit or loss, and all derivative contracts.

These separate financial statements are prepared to meet local statutory requirements.

The preparation of separate fmancial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the separate financial statements and the reported amounts of revenues and expense during the reporting period. It also requires management to exercise its judgment in the process of applying the Bank's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 6.

a) New and amended standards adopted by the Company

IFRS 13 "Fair Value Measurement" (issued in May 2011 and effective for armual periods beginning on or after I January 2013) improved consistency and reduced complexity by providing a revised definition of fair value, and a single source of fair value measurement and disclosure requirements for use across IFRSs. The Standard also resulted in additional disclosures in these financial statements. Refer to Note S.I

Amendments to lAS 36 - "Recoverable amount disclosures for non-financial assets" (issued in May 2013 and effective for annual periods beginning I January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period). The amendments remove the requirement to disclose the recoverable amount when a CGU contains goodwill or indefinite lived intangible assets but there has been no impairment.

16

PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTIN1JED) 31 DECEMBER 2013

(All amounts are in thousands ofBGN) 2. Basis for preparation of the separate financial statements (continued)

a) New and amended standards adopted by the Company (continued)

Amendments to lAS 1 "Presentation of Financial Statements" (issued in June 2011, effective for annual periods beginning on or after 1 July 2012) changed the disclosure of items presented in other comprehensive income. The amendments require entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be reclassified to profit or loss in the future .

Amended lAS 19 "Employee Benefits" (issued in June 2011, effective for periods beginning on or after 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. The standard requires recognition of all changes in the net defined benefit liability (asset) when they occur, as follows: (i) service cost and net interest in profit or loss; and (ii) remeasurements in other comprehensive income. The Company reports accumulated amount of these remeasurements in retained earnings in equity.

b) New and amended standards, and improvements to IFRS mandatory for the first time for the financial year beginning on or after 1 January 2013 but not currently relevant to the Company (although they may affect the accountingfor future transactions and events)

"Disclosures - Offsetting Financial Assets and Financial Liabilities" - Amendments to IFRS 7 (issued in December 2011 and effective for annual periods beginning on or after 1 January 2013). The amendment requires disclosures that enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off.

Improvements to International Financial Reporting Standards (issued in May 2012 and effective for annual periods beginning 1 January 2013). The improvements consist of changes to five standards. IFRS I was amended to (i) clarify that an entity that resumes preparing its IFRS financial statements may either repeatedly apply IFRS 1 or apply all IFRSs retrospectively as if it had never stopped applying them, and (ii) to add an exemption from applying IAS 23 "Borrowing costs", retrospectively by first-time adopters. IAS 1 was amended to clarify that explanatory notes are not required to support the third balance sheet presented at the beginning of the preceding period when it is provided because it was materially impacted by a retrospective restatement, changes in accounting policies or reclassifications for presentation purposes, while explanatory notes will be required when an entity voluntarily decides to provide additional comparative statements. IAS 16 was amended to clarify that servicing equipment that is used for more than one period is classified as property, plant and equipment rather than inventory.

IAS 32 was amended to clarify that certain tax consequences of distributions to owners should be accounted for in the income statement as was always required by IAS 12. IAS 34 was amended to bring its requirements in line with IFRS 8. IAS 34 now requires disclosure of a measure of total assets and liabilities for an operating segment only if such information is regularly provided to chief operating decision maker and there has been a material change in those measures since the last annual financial statements .

17

PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013


b) New and amended standards, and improvements to IFRS mandatory for the first time for the financial year beginning on or after 1 January 2013 but not currently relevant to the Company (although they may affect the accounting for future transactions and events) (continued)

"Transition Guidance Amendments to IFRS 10, IFRS 11 and IFRS 12" (issued in June 2012 and effective for annuaJ periods beginning 1 January 2013). The amendments clarify the transition guidance in IFRS 10 "Consolidated Financial Statements". Entities adopting IFRS 10 should assess control at the first day of the annual period in which IFRS lOis adopted, and if the consolidation conclusion under IFRS 10 differs from IAS 27 and SIC 12, the immediately preceding comparative period (that is, year 2012) is restated, unless impracticable. The amendments also provide additional transition relief in IFRS 10, IFRS 11 "Joint Arrangements" and [FRS 12 "Disclosure of Interests in Other Entities", by limiting the requirement to provide adjusted comparative information only for the immediately preceding comparative period. Further, the amendments remove the requirement to present comparative information for disclosures related to unconsolidated structured entities for periods before IFRS 12 is first applied.

Other revised standards and interpretations: IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine ", considers when and how to account for the benefits arising from the stripping activity in mining industry. The interpretation did not have an impact on the Company's financial statements. Amendments to IFRS 1 "First-time adoption of International Financial Reporting Standards Government Loans", which were issued in March 2012 and are effective for annual periods beginning 1 January 2013, give first-time adopters of IFRSs relief from full retrospective application of accounting requirements for loans from government at below market rates. The amendment is not relevant to the Company.

c) New standards and interpretations that are mandatory for the annual periods beginning on or after 1 January 2014 or later, and which the Company has not early adopted or such, which are not applicable to the Company at present (although they can impact the treatment of future transactions and events)

Offsetting Financial Assets and Financial Liabilities - Amendments to lAS 32 (issued . in December 2011 and effective for annual periods beginning on or after 1 January 2014). The amendment added application guidance to IAS 32 to address inconsistencies identified in applying some of the offsetting criteria. This includes clarifying the meaning of 'currently has a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent to . net settlement.

Amendments to IFRS 10, lFRS 12 and lAS 27 - Investment entities (issued on 31 October 2012 and effective for annual periods beginning 1 January 2014). The amendment introduced a definition of an investment entity as an entity 1hat (i) obtains funds from investors for the · purpose of providing them with investment management services, (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis. An investment entity will be required to account for its subsidiaries at fair value through profit or loss, and to consolidate only those subsidiaries that provide services that are related to the entity's investment activities. IFRS 12 was amended to introduce new disclosures, including any significant judgements made in determining whether an entity is an investment entity and information about financial or other support to an unconsolidated subsidiary, whether intended or already provided to the subsidiary.

18

PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013


c) New standards and interpretations that are mandatory for the annual periods beginning on or after 1 January 2014 or later, and which the Company has not early adopted or such, which are not applicable to the Company at present (although they can impact the treatment of future transactions and events) (continued)

Amendments to lAS 39 - "Novation of Derivatives and Continuation of Hedge Accounting" (issued in June 2013 and effective for annual periods beginning 1 January 2014). The amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated (i.e parties have agreed to replace their original counterparty with a new one) to effect clearing with a central counterparty as a result of laws or regulation, if specific cond itions are met.

Amendments to lAS 19 - "Defined benefit plans: Employee contributions" (issued in November 2013 and effective for annual periods beginning I July 2014). The amendment allows entities to recognise employee contributions as a reduction in the service cost in the period in which the related employee service is rendered, instead of attributing the contributions to the periods of service, if the amount of the employee contributions is independent of the number of years of service.

IFRS 10 "Consolidated Financial Statements" (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013; to be applied in the EU at the latest as from the commencement date of its first financial year starting on or after 1 January 2014) replaces all of the guidance on control and consolidation in IAS 27 "Consolidated and separate financial statements" and SIC-12 "Consolidation - special purpose entities". ]FRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control. This definition is supported by extensive application guidance.

IFRS 11 "Joint Arrangements" (issued in May 2011 and effective for annual periods beginning on or after I January 2013; to be appJ ied in the EU at the latest as from the commencement date of its first financial year starting on or after 1 January 2014) replaces IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly Controlled Entities-Non-Monetary Contributions by Venturers". Changes in the definitions have reduced the number of types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures.

IFRS 12 "Disclosure of Interests in Other Entities" (issued in May 2011 and effective for annual periods beginning on or after 1 January 2013; to be applied in the ED at the latest as from the commencement date of its first financial year starting on or after 1 January 2014) applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. It replaces the disclosure requirements previously found in IAS 28 "Investments in associates". IFRS 12 requires entities to disclose information that helps finandal statement readers to evaluate the nature, risks and financial effects associated with the entity's interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. To meet these objectives, the new standard requires disclosures in a number of areas, including significant judgements and assumptions made in determining whether an entity controls, jointly controls, or significantly influences its interests in other entities, extended disclosures on share of non-controlling interests in group activities and cash flows, summarised financial information of subsidiaries with material non-controlling interests, and detailed disclosures of interests in unconsolidated structured entities.

19

PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013 (All amounts are in thousands ofBGN)

2. Basis for preparation of the separate financial statements (contiDu~d)

c) New standards and interpretations that are mandatory for the annual periods beginning on or after 1 January 2014 or later, and which the Company has not early adopted or such, which are not applicable to the Company at present (although they can impact the treatment of future transactions and events) (continued)

lAS 27 "Separate Financial Statements" (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013; to be applied in the ED at the latest as from the commencement date of its first financial year starting on or after I January 2014) was changed and its objective is now to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The guidance on control and consolidated financial statements was replaced by IFRS 10 "Consolidated Financial Statements" .

lAS 28 "Investments in Associates and Joint Ventures" (revised in May 2011 and effective for annual periods beginning on or after 1 January 2013; to be applied in the EU at the latest as from the commencement date of its first financial year starting on or after 1 January 2014). The amendment of lAS 28 resulted from the Board's project on joint ventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures using the equity method into lAS 28 because this method is applicable to both joint ventures and associates. With this exception, other guidance remained unchanged. Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Company's financial statements.

d) New or revised standards and interpretations not yet adopted by the European Union

IFRS 9 "Financial Instruments: Classification and Measurement". Key features of the standard issued in November 2009 and amended in October 2010, December 2011 and November 2013 are: • Financial assets are required to be classified into two measurement categories: those to be

measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity's business model for managing its fmancial instruments and the contractual cash flow characteristics of the instrument.

• An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity's business model is to hold the asset to collect the contractual cash flows, and (ii) the asset's contractual cash flows represent payments of principal and interest only (that is, it has only "basic loan features"). All other debt instruments are to be measured at fair value through profit or loss.

• All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.

• Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income.

• Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply lAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

1

20


2. Basis for preparation of the separate financial statements (continued)

The amendments made to IFRS 9 in November 2013 removed its mandatory effective date. ED has not yet approved IFRS 9.

IFRS 14 Regulatory Deferral Accounts (issued on 30 January 2014 and effective for annual periods beginning 1 January 2016)

Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) (issued on 21 November 2013 and effective for annual periods beginning 1 July 2014)

Annual Improvements to IFRSs 2010-2012 Cycle (issued on 12 December 2013 and effective for annual periods beginning 1 July 2014)

Annual Improvements to IFRSs 2011-2013 Cycle (issued on 12 December 2013 and effective for annual periods beginning 1 July 2014)

IFRIC Interpretation 21 - "Levies" (issued on 20 May 2013 and effective for annual periods beginning 1 January 2014).

I .

21


3. Summary of significant accouniing policies

3.1. Interest income and expense

Interest income and expense are recognized in the income statement for all interest bearing instruments on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract tha1 are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Interest accrued as a result of holding trading securities and securities available for sale is reported as interest income.

Interest income and expense on interest rate swap deals, where the nominal amount is exchanged, is disclosed gross as interest income and interest expense.

3.2. Fees and commission

Fees and commissions, except for those, which fonn part of the effective interest rate of the . instrument, are generally recognized on an accrual basis when the service has been provided.

Fees and commission consist mainly of fees for BGN and foreign currency payment transactions, opening of letters of credit and guarantees issuing. Commission on foreign currency transactions are reported in the income statement on their receipt. Treatment of fees and commissions on guarantees is disclosed in note 3.19.

3.3. Financial assets

The Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; and available-for-sale financial assets. Management detennines the classification of its investments at initial recognition.

22


3. Summary of significant accounting policies (continued)

3.3. Financial assets (continued)

a) Financial assets at fair value through profit or loss

This category includes financial assets held for trading. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near tenn or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-tenn profit-taking. Derivatives are also categorized as held for trading.

Financial assets held for trading are initially recognized at fair value plus transaction costs and subsequently re-measured at fair value based on current bid prices at the reporting date. All related realized and unrealized gains and losses are included in net trading gain in the period in which they arise. Interest earned whilst holding financial assets held for trading is reported as interest income.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or detenninable payments that are not quoted in an active market, other than: (a) those that the entity intends to sell immediately or in the short tenn, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Loans are recognized when cash is advanced to the borrowers.

The category Loans and receivables includes: Balances with the central bank, Loans and advances, the part of other assets that is represented by financial assets.

c) Available-for-sale financial assets

Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

Available-for-sale investments are initially recognized at fair value plus transaction costs and are subsequently re-measured at fair value based on current bid prices or amounts derived from cash flow models. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized directly in other comprehensive income. When an available-for-sale financial asset is derecognized or impaired, the cumulative gain or loss previously recognized in other comprehensive income is recognized in profit or loss. Interest calculated using the effective interest method is recognized in the income statement. Dividends on available-for-sale equity instruments are recognized in the income statement when the Bank's right to receive payment is established.

I

I

23



3.3. Financial assets (continued)

c} Available-for-sale financial assets (continued)

Regular way purchases and sales of financial assets at fair value through profit or loss and available for sale are recognized on trade-date - the date on which the Bank commits to purchase or sell the asset.

The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Bank establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, discounted cash flow analysis and other valuation techniques consistent with the specific features of the security market in Bulgaria.

Financial assets are derecognized when the contractual rights to receive cash flows from the financial assets have ceased to exist or the assets have been transferred and substantially all risks and rewards of ownership are also transferred. When a small holding of shares in one entity that is classified as an AFS equity investments is exchanged for shares in another entity the original shares are derecognised. Financial liabilities are derecognized when they are extinguished - that is, when the obligation is discharged, cancelled or expires.

d} Derivatives

Derivatives are financial instruments:

(a) its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the 'underlying');

(b) that requires no initial net investment or an initial net investment is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors;

(c) that is settled at a future date.

Derivative financial instruments including forwards are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices, discounted cash flow models and pricing models as appropriate. The positive fair value of the derivatives is carried as asset and the negative fair value is carried as liability. The changes in the fair value of derivatives are included in the income statement.

The Bank has not entered into transactions where the fair value was different from the transaction price. The best evidence offair value at initial recognition is the transaction price (i.e., the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (Le., without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

The Bank does not apply hedge accounting.

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3.4. Securities lending and repurchase agreements

Securities sold subject to repurchase agreements ('repos') are reclassified in the financial statements as pledged assets when the transferee bas the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in other deposits.

Securities purchased under agreements to resell ('reverse repos') are recorded as loans and advances to banks. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the fmancial statements.

3.5. Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

3.6. Foreign currency transactions

Functional and presentation currency Items included in the financial statements are ineasured using the currency of the primary economic environment in which the Bank operates ('the functional currency'). The financial statements are presented in the national currency of Bulgaria, the Leva (BGN), which is the Bank's functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates defined by the Bulgarian central bank ("BNB" or "the central bank") prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Such balances are translated at the Central bank's year-end

. exchange rates.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized in proflt or loss, and other changes in the carrying amount are recognized in other comprehensive income.

As of 31 December 2013, monetary assets and liabilities are translated at the reference Central Bank exchange rate- BGN 1 for EUR 0.5113 (2012: BGN 1 for EUR 0.5113) and BGN 1 for USD 0.704712 (2012: BGN 1 for USD 0.674036). Effective since 1 January 1999, the Bulgarian Lev is fixed to the EUR at a rate BGN 1.95583 = EUR I.

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3.7. Impairment for losses and uncollectability

The carrying amounts of the Bank's assets are reviewed at each balance sheet date to determine whether there is any indication of impainnent. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement.

a) Assets carried at amortized cost

The Bank assesses at each balance sheet date whether there is objective evidence that a fmancial asset or group of fmancial assets is impaired. A financial asset or a group of financial assets is impaired and impainnent losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Objective evidence that a fmancial asset or group of assets is impaired includes observable data about the following loss events: • Delinquency in contractual payments of principal or interest; • Cash flow difficulties experienced by the borrower (for example, equity ratio, net income

percentage of sales); • Breach of loan covenants or conditions; • Initiation of bankruptcy proceedings; • Deterioration of the borrower's competitive position; • Deterioration in the value of collateral; • Downgrading below investment grade level.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an a.1lowance account and the amount of the .Ioss is recognized in the income statement. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

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PIRAEUS BANK BIJLGARlA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013 (All amounts are in thousands ofBGN)


3.7. Impairment for losses and uncollectability (continued)

a) Assets carried at amortized cost (continued)

For the purposes of a collective assessment for impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e., on the basis of the Bank's grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors) . Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being assessed.

Future cash flows in a group of financial assets that are collectively assessed for impairment are estimated on the basis of the con1ractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the income statement in impairment charge for credit losses.

Loans, subject to both collective assessment and individually significant assessment for impairment, and whose maturity is renegotiated, are not deemed delinquent, but are considered new loans. If in the . following years these loans are renegotiated or become delinquent, then they are reported as such.

b) Financial assets carried at fair value

The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-forsale, a significant or prolonged decline in the fair value of the financial asset below its cost is considered in determining whether the assets are impaired.

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PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013 (All amounts are in thousands ojBGN)


3.7. Impairment for losses and unco]]ectabiJity (continued)

b) Financial assets carried at fair value (continued)

If any such evidence exists for available for- sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impainnent loss on that financial asset previously recognized in profit or loss - is removed from equity and recognized in the income statement. Impainnent losses recognized in the income statement on equity instruments, classified as available-for-sale, are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, . the impairment loss is reversed through the income statement.

3.8. Property, plant and equipment

All property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement when the expenditure is incurred.

Land is not depreciated. Depreciation is calculated on the straight-line method to allocate the cost of each asset to their residual values over their estimated useful life.

Depreciation on property and equipment is charged using the straight-line method at the following rates by classes of assets:

2013 2012 Buildings 4% 4% Equipment 10%-20% 10%-25% Computers, Network equipment 12.5%-25% 20%-33.3% Motor vehicles - cars 12.5% 15%-20% Fixtures and fittings 10%-25% 10%-25% Leasehold improvements The life of the lease The life of the lease

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Assets that are subject to amortization are reviewed for impainnent whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and value in use.

3.9. Social, pension and healthcare funds

The Bank is obliged by the current Bulgarian legislation to make fixed contribution on behalf of the employees in a social fund operated by the Government. All those payments/liabilities are recognized as an expense in the period to which those relate.

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3.10. Share capital

(a) Share issue costs

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

(b)Dividends on ordinary shares

Dividends on ordinary shares are recognized in equity in the period in which they are approved by the Bank's shareholders. Dividends for the year that are declared after the balance sheet date, if any, are dealt with in the subsequent events note.

3.1.1. Intangible assets

Costs that are directly associated with identifiable non-monetary asset without physical substance controlled by the Bank and will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Expenditure, which enhances or extends the performance of intangible assets beyond their original specifications is recognized as a capital improvement and added to the original costs of the asset.

Costs associated with developing or maintaining intangible assets are recognized as an expense as incurred.

Intangible assets are amortized using the straight-line method over their useful lives.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An intangible asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

The Bank holds only software licenses as intangible assets. Amortization on software licenses is charged using the straight-line method at the following rates by classes of assets:

2013 2012 Software licenses 20% - 100% 20% - ]00%

3.12. Current and deferred income tax

Tax on the profit for the year comprises current tax and the change in deferred tax. Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the tax rates enacted or substantially enacted by the balance sheet date, and any adjustment of tax payable for previous years. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is calculated on the basis of the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. The effect on deferred tax of any changes in t~x rates is charged to the income statement, except to the extent that it relates to items previously charged or credited directly to other comprehensive income. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

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PIRAEUS BANK BULGARIA AD NOTES TO THE SEPARATE FINANCIAL STATEMENTS (CONTINUED) 31 DECEMBER 2013 (All amounts are in thousands ojBGN)


3.13. Cash and cash equivalents

Cash and cash equivalents encompass cash in hand, placements with Central bank and Treasury bills with original maturity less than 3 months.

3.14. Provisions

Provisions for restructuring costs and legal claims are recognized when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to anyone item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The incr

Documents

PIRAEUS BANK BULGARIA AD INDEPENDENT AUDITOR .../media/com/downloads/...Bulgaria AD, UIC 131352367, Bulfina EAD, mc 131088540, Piraeus Insurance Brokerage EOOD, UIC 175101929, Bulfinace